A shareholders’ agreement is an essential agreement in M&A transactions involving more than one shareholder.

Understanding the key legal provisions is the foundation for a solid shareholders’ agreement. The following are three legal provisions to keep in mind:

1. Quorum for general meeting (Section 328, Companies Act 2016 (“CA”))

Other than in the case of a company with only one shareholder, two shareholders personally present at a general meeting or by proxy shall constitute a quorum unless a higher number is specified in the constitution.

Implication:

In the case of a company with two shareholders, one absent shareholder can prevent the meeting from proceeding, as quorum cannot be met. In such instances, the majority shareholder has to rely on written resolutions to pass resolutions (save for reserved matters agreed between the two shareholders and the matters set out in item 2 below).

2. Removal of director or auditor (Section 297(2), CA)

A resolution to remove a director or auditor before expiration of his term of office cannot be passed as a written resolution and requires a physical general meeting instead.

Implication:

This requirement makes it more difficult to remove a director or auditor before the expiration of his term of office.

3. Venue for meetings (Section 327, CA)

The main venue for meeting of shareholders must be in Malaysia and the chairperson must be present at that main venue.

Implication:

This may pose a problem for companies with non-resident shareholders. They may have to pass resolutions by way of written resolutions instead (save for the matters set out in item 2 above).

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This post was first posted on LinkedIn on 14 January 2025.